Hallmark, Martha Stewart Exploring New Lifestyle Cable Channel

Two of the most recognized American brands, Hallmark andMartha Stewart, may be joining forces behind a new lifestyle cable channel. Crown Media Holdings, theparent company of Hallmark, is holding preliminary talks with Martha StewartLiving Omnimedia about forming a new company jointlyowned by both outfits. If the talks move ahead, the two partners may seek tobring in a third party such as a private equity partner to help fund expansion.

The rationale behind such a get-together is simple: CrownMedia, which operates two programming services, Hallmark Channel and HallmarkMovie Channel, wants to tap Martha Stewart Living Omnimedia's digital expertise, while MSLO wants a bigger stake in the TV business. And if Oprah's gettingher own channel, why not Martha?

Executives stress that the talks are in the very early stages.The result could be a much smaller joint venture deal that would have the twofirms simply agreeing to launch a new joint venture channel, tentatively calledHallmark Home. According to sources, the partners have already been soundingout distributors about plans for the service.

A spokesperson for MSLO declined to comment. Representatives for Hallmark Channel were not immediately available.

Starting March 29, Martha-branded shows will air on Hallmarkseven hours a day. The two will also develop a series of specials throughoutthe year. The new shows will help Hallmark hone its brand as one closely tiedto celebrations and feel-good moments, a theme that's likely to be anattraction for advertisers. The various shows will be sold jointly by the salesteams at Hallmark and MSLO, though one headache might be modifying the high CPMfor a syndicated show to that of a cable property. Cable is typically pricedmore modestly than broadcast.

The talks with MSLO indicate Crown Media's decision to take a more long-term view of its businesses after several years of exploring a sale. The company previously had talked to numerous potential acquirers, but its debt had always been a turn-off with suitors. In May 2009, HenrySchleiff stepped down as CEO, while Crown executives said the services were nolonger for sale. Schleiff was replaced by Bill Abbott, the former ad saleschief, who has been moving fast to reorient the service and broadendistribution.

Hallmark is moving many of its made-for-TV movies to itssibling Hallmark Movie Channel and trying to attract younger viewers. CEO Abbott is also retooling the flagship networkto compete directly with other lifestyle services such as Scripps NetworksInteractive. Ironically, repeats of The Martha Stewart Show and another,quirky show, Whatever Martha, were airing on Scripps' FLN, which isbeing relaunched as The Cooking Channel. The FLN-Cooking changeover sent theMSLO staff looking for a new TV deal.

According to SEC documents, Crown is planning torecapitalize its debt, with Morgan Stanley acting as its financial advisor.Crown Media is 70% owned by the Hallmark greeting-card company. Now that Crownis thinking more long-term, a bigger financial partnership with MSLO coulddramatically raise the value of its two cable channels.

Crown Media Holdings recorded a net loss of $22.5 million in2009, down from an annual loss of $37 million in 2008. Total revenue was $279million in 2009, a slight decrease on 2008. Ad revenue was $214 million;Hallmark Cards spent $775,000 on advertising with Crown last year. Subscriberrevenue was $63 million.

MSLO had a net loss of $14.5 million for 2009, a slightimprovement on the 2008 loss of $15.6 million. Revenue from broadcasting was$46 million, and $17 million from Internet operations. MSLO also housespublishing and merchandise business segments.